Royal Bank of Scotland : Economics Weekly - Game on

Lower inflation and interest rates gave the Chancellor some slack in his Budget, yet it didn't prompt big giveaways overall. The net cost of new policies is £1.2bn, which is just 0.03% of total planned spending over the next 5 years. With the general election approaching this budget sets the benchmark against which opposition parties' plans will be assessed. That includes another 4 years of spending cuts to reach an overall surplus in 2018. But all parties say they'd do things differently if they were elected in May. So there a slim chance the current budget survives the summer.

The Budget contained some new ideas, including a Help to Buy ISA to support first time buyers harvest enough cash for a deposit. Regular ISAs also gain flexibility. From the autumn you'll be allowed to take money in and out without automatically losing the tax protection. Corporation tax was cut to 20% and a host of levies on the North Sea oil & gas sector were also chopped. And for the UK's cities more deals were announced to give groups of councils greater control over their resources, starting with Manchester - the Northern Powerhouse. More revolution than evolution, if successful it could radically alter the distribution of power and decision-making across the UK.

Strong tax receipts boosted the public finances last month. Self-assessment tax receipts tend to paid in the first two months of the year and the 2015 tally has been £1.9bn higher than in 2014. With one month to go it means the Government is on track to meet its borrowing target of £90bn this year. But that doesn't change the fact that this has been a tax-light recovery, with the Government collecting taxes worth 35.8% of GDP this year, 3% lower than planned in 2010.

The proportion of Britons in work reached its highest-ever level in the three months to January. Over the year, employment rose by more than 600,000 and unemployment fell by almost 500,000, taking the rates to 73.3% and 5.7% respectively. There are also 735,000 job vacancies - a record.

Even so, wage growth remains fairly muted, rising by 1.6%y/y. One reason is that the number of people who are in part-time jobs and want to work more hours remains high, suggesting the economy can grow more without inflationary pressures emerging. But thanks to low inflation real earnings growth reached 1.3%y/y in January, their highest since April 2008, which incidentally was before iPads were introduced. The UK's problem remains low productivity growth. Where and when productivity growth finally starts to accelerate then higher wages will surely follow.

The U.S. might have removed the word patient from its forward guidance but the UK authorities are in even less of a hurry to raise rates. Minutes from March's meeting at the Bank of England show focus tended to centre on exchange rates and sterling's strength in particular. The pound has gained around 7% against the euro already this year, lowering the cost of imported goods. Cheaper imports will pull inflation down, which is already way below target thanks to low oil prices. Add to that Andrew Haldane, the Bank's Chief Economist, saying the Bank stands ready to lower, yes lower, rates if needed and you have two reasons not to expect rates to rise anytime soon.

Since last year the US Fed had been saying it would be patient in starting to raise interest rates. No longer is it patient but nor is it in any hurry to tighten. The economy is growing at a decent if unspectacular rate. While job creation is impressive, the housing market has slowed and there's recently been a curious weakness in consumer confidence and retail sales. There are risks beyond US shores. And inflation is nowhere to be seen. Markets reckon the Fed will move in October. As Janet Yellen made clear, that depends on the data.

Eurozone employment rose by 0.1% in the final quarter of 2014 and by 0.9% when compared with the end of 2013. That's a respectable rate of growth and compares reasonably favourably with the UK's 2%y/y rise. Differences between member states remain stark mind. While Italy's employment rate fell by 0.2% in last quarter of 2014, Spain's rose by 0.7% and is up by 2.5% annually, faster even than in the UK. The Spanish economy may not have healed, yet a scent of economic spring hangs in the air, a perfume a few fellow euro-club members would love to breath.